Profit (收益) = Everything the company gets to keep from the Revenue after it pays its costs!

Present Profit v. Future Profit

Present Profit = What we are keeping right now. (Most Important)

Expected Future Profit = What we think we’ll get in the future (Companies with higher expected future profits have more value. While companies with a possibility of low future profits will have a lower value)

Profit is Counted in Two Ways

Example: Joshua has a company (Company A) that just made $150,000 in Revenue. The company spends $9,000 on Taxes and Utilities, $3,000 on Wages, and $5,000 on Raw Materials. Joshua gave the company the building but would have made $2,000 if he used it as a school instead. He also lost $5,000 on his original investment.

Economic Profit (经济利润) = Revenue – Total Economic Cost

What is Company A’s Economic Profit?

Accounting Profit (会计利润) = Revenue – Explicit Costs.

What is Company A’s Accounting Profit?

In Managerial Economics, we usually mean Accounting Profit when we say “Profit”